G5 Entertainment: Sequential improvements in growth and profit - ABG

Sherlock going strong with HC seeing seq. improvement

Elevated RUB weighing on EBIT in 2022e and 2023e

Share trading at 5.9x EV/EBIT 2023e, incl. high RUB

We forecast -9% organic growth in Q3, up from -13% in Q2
We forecast Q3 sales of SEK 350m, up 7% y-o-y (+16% FX, -9% org.). Organic growth is up from -13% last quarter on a higher share of sales from Sherlock and easier comps for HC. We forecast Sherlock to grow by 10% organically q-o-q. We think the game will continue to grow in the coming quarters, as the conversion to more paying users continues even though DAU may remain relatively flat. We forecast Q3’22e sales of SEK 76m for Sherlock, growing to SEK 79m in Q4’22e. We estimate other new games to be stable and licensed games to decline slightly, q-o-q. Furthermore, the post-pandemic normalisation has led to higher seasonality of sales, which means a weaker Q3 and a stronger Q4. As such, we are encouraged by the development in HC over the summer and expect it to grow in Q4’22e, y-o-y. We still wait for HC to stabilise with long-term loyal players remaining, but mgmt. seem positive that we are closing in on that goal. On profitability, we expect the high Russian Rouble to weigh on opex in Q3, as in Q2, with a neg. effect of ~SEK 10m. We expect this to persist in the coming quarters as well. We also expect UA/sales to decline to 26% in Q3 vs. 35% in Q2 (still elevated, as UAC was high in July). This corresponds to EBIT of SEK 39m. If we assume a normal RUB/SEK and UAC, EBIT would be >SEK 60m in Q3.

EBIT -6%, -13%, +2% on 2022e, 2023e and 2024e
We hike royalty costs slightly on positive growth for Hidden City in Q4 and increase opex on maintained levels of the RUB in Q4 and 2023. We also add the stronger USD to our sales forecast. The net effect on EBIT is -6%, -13%, and +2% on 2022e, 2023e and 2024e, respectively.

New fair value range SEK 210-360 (230-390)
We cut our fair value range to SEK 210-360 (230-390) on uncertainty around the Rouble. If or when the currency
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